Stars face bill for millions if tribunal judgment goes against Ingenious as Revenue says no tax relief on film schemes

Ingenious Media, whose £8 billion film investment plans have attracted wealthy celebrity investors, has been told by Revenue & Customs that its schemes are designed to avoid tax rather than promote films.

Patrick McKenna, who runs Ingenious, last week denied accusations by MP Margaret Hodge, head of the Public Accounts Committee, that his investment schemes amounted to tax-dodging.

Wealthy investors in McKenna’s schemes won tax relief of £1.35 billion, with some individuals having invested tens of millions of pounds.

Accusations: MP Margaret Hodge, head of the Public Accounts Committee, believes the Ingenious investment schemes amount to tax-dodging

Among high-profile clients taking
advantage of the schemes were footballers David Beckham, Steven Gerrard
and Wayne Rooney, industrialists such as Sir James Dyson and media
figures including Lord Hollick, Newsnight presenter Jeremy Paxman, Anne
Robinson and Charles Saatchi.

Musician Robbie Williams and film maker Guy Ritchie were among investors from the show business world.

Now
that Revenue & Customs has reached a verdict on what it sees as
Ingenious’s aims, it will argue its case at a tax tribunal, likely to
begin hearings next year.

Ingenious
itself called for the tribunal as a way of bringing to a head the
Revenue’s long-running investigations, revealed by Financial Mail almost
three years ago. If it loses the case, investors will face immediate
demands for millions of pounds in tax.

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The
sums invested by individuals are understood to have ranged from
£160,000 to more than £60 million, with top footballers investing an
average of about £500,000.

Ingenious
Media Investments chief executive James Clayton said: ‘We welcome the
opportunity this gives us to finally bring the matter before the
tribunal where we will have our case heard by an independent assessor.’

McKenna
told the committee that the Revenue was investigating only to see
whether the schemes were run ‘with a view to a profit’, which would make
them legal.

However, it is understood the Revenue has told Ingenious that it does not regard its film schemes as having pursued profits.

The six schemes affected are part of the company’s Inside Track and Ingenious Film Partnership plans.

They
are said to have been set up to allow rich investors to put money into
British film production. Those investing cash were able to claim their
outlay as tax relief over a period of 15 years. Films backed included
Shaun Of The Dead, Avatar and Die Hard 4.

Tax
had to be paid to the Revenue at the end of the 15 years, but investors
could make more money out of the delayed tax payment than they were
eligible to pay.

Other schemes allowing investors to offset any first-year trading losses in a film against other income were banned in 2007.

McKenna
denied accusations by Hodge that he provided ‘exit’ schemes for
investors at the end of a scheme’s life, which would allow them to avoid
paying the tax due. He said his plans allowed investors to reinvest
funds.

The Labour
government encouraged the setting up of such investment plans in 1997 as
a way of promoting the British film industry, but closed loopholes some
years later amid fears that they were being exploited for tax avoidance
purposes.